No Deal Brexit Tax Implications

Government offers costly Brexit no-deal VAT concession

The government has proposed to eliminate the post-Brexit threat of hefty VAT bills on thousands of importers into Britain. This subsidy could cost nearly £8bn per annum. However, additional export VAT, tariff charges and compliance burdens loom for over 130,000 other UK businesses.

Irrespective of whether the UK makes a ‘hard’ or ‘soft’ Brexit, the UK will be out of the EU VAT regime. HMRC has already estimated that over 135,000 companies that export to the EU will face new VAT disclosures, customs declarations and potential VAT compliance bills.

Government acts to soften Brexit worst case

Importers

Importers of goods into the UK from the EU will not have to make cash payments for import VAT as was planned. This is to be extended to importers of goods from around the world. This welcome concession to importers could cost the UK Exchequer up to £7.7bn per annum

The £15 VAT-free import threshold for packages coming from outside the EU will be scrapped. This will level the playing field for UK e-commerce companies who have been losing out to foreign online sellers able to avoid VAT charges.

Exporters

An estimated 135,000 UK companies selling goods to EU businesses will face local import VAT and tariffs. The guidance notes are unhelpful on this point, advising companies to seek specialist help. There will be no change on the VAT rules for exporters of services.

Over 30,000 small e-commerce businesses will be particularly badly hit. They will lose the right to sell goods to consumers under their UK VAT registration up to certain distance selling thresholds. The typical ongoing cost of registering and filing foreign VAT returns could be as high as €6,000 per annum (EC estimate).

Digital services (streaming media, apps, software etc) companies selling to EU consumers will lose their automotive MOSS filing option with HMRC, and will have to register somewhere else in the EU.

EU VAT refunds

UK companies that incur EU VAT on hotel bills, taxis, exhibition or events will lose access to the online reclaim service (‘8thDirective’). Instead, they will revert to paper-based invoice submissions under the ’13th Directive’ claims process.

A two-year delay to VAT risks?

Negotiations around the UK’s withdrawal agreement recommence in the next few days. The likelihood is that a withdrawal deal will be cobbled together in time for Brexit, but that it will push the high-risk issues out to a 19-month transition period stretching until December 2020. But should this go wrong, companies need to prepare.